The stock market has been in sell-off mode this year and all the major indices are in the red so far in 2022. But what if things get worse from here and the stock market loses even more ground?
Further market correction presents a real opportunity for savvy investors to add some top growth stocks to their portfolios at mouthwatering valuations. Advanced Micro Devices (AMD -0.35%), ASML Holding (ASML -1.03%), and Synaptics (SYNA 3.09%) are three such fast-growing companies that investors may want to buy in case the stock market sell-off worsens. All three companies are growing at an eye-popping pace, which explains why they are richly valued right now. But investors could scoop up these stocks on the cheap if the companies lose more ground, setting portfolios up for long-term gains.
Let's look at the reasons why these three names are worth buying in a stock market sell-off.
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1. Advanced Micro Devices
Share prices of AMD are down nearly 29% in 2022, but the stock still trades at a relatively expensive 38 times trailing earnings when compared to the Nasdaq-100's earnings multiple of 25. The forward earnings multiple of 23 shows that AMD's earnings are on track to grow at a terrific pace, which is why investors should consider taking advantage of any further declines in the chipmaker's stock price.
After all, AMD is set to deliver another year of healthy growth, and the good part is that the markets it operates in point toward a bright future. More specifically, AMD expects to finish 2022 with $26.3 billion in revenue, which would be a 60% jump over last year. The company also expects an adjusted gross margin of 54% this year, a big improvement over 2021's non-GAAP gross margin of 48%.
AMD's acquisition of Xilinx, which was completed in February this year, along with robust growth in the company's server, semi-custom, and client processor businesses are going to be the key catalysts behind the company's growth.
The Xilinx acquisition, for instance, places AMD in a stronger position to capitalize on the $135 billion revenue opportunity in the cloud computing, edge computing, and intelligent devices space. That's not surprising as Xilinx reportedly controlled half of the field-programmable gate array (FPGA) market in 2020, a space that's expected to generate $14 billion in revenue by 2028 as compared to $6 billion last year.
On the other hand, AMD's share of the server CPU (central processing unit) market is expected to jump to 19% next year from 10.7% at the end of 2021. Even better, Bank of America sees AMD's share of the server CPU space increasing to 35% in the long run thanks to the growing demand for the company's chips from hyperscale cloud computing customers.
The data center business alone could give AMD a massive long-term boost, while it also has solid prospects in the graphics cards, gaming console, and client CPU markets. All these catalysts are expected to help AMD clock 33% annual earnings growth over the next five years, which makes buying the stock a no-brainer in case it declines in the event of a market sell-off.
2. ASML Holding
ASML Holding is another stock that's trading at an expensive 42 times earnings despite pulling back nearly 27% this year. As it turns out, the semiconductor equipment manufacturer that supplies its machines to top foundries such as Intel, Taiwan Semiconductor Manufacturing, and Samsung, among others, has started regaining its mojo on the stock market over the past couple of weeks.
But investors would do well to take advantage of any slip in shares of ASML in the event of a stock market sell-off as the Dutch giant is the key to solving the global semiconductor shortage. According to Intel CEO Pat Gelsinger, the semiconductor industry is likely to be hamstrung by supply shortages through 2024.
This explains why there is a huge demand for ASML's lithography machines that help foundries make chips. The company had net bookings worth 7 billion euros in the first quarter of 2022, which was well ahead of analysts' expectations of 3.7 billion euros. It is worth noting that ASML's bookings were higher than its first-quarter revenue of 3.5 billion euros. The company's bookings refer to system sales orders for which it has accepted written authorizations.
What's more, the big jump in the company's bookings last quarter brought its total order backlog to 29 billion euros, which points toward a nice jump in revenue over its 2021 revenue of 18.6 billion euros. ASML expects to finish 2022 with a 20% increase in revenue, which would bring its annual revenue to just over 22.5 billion euros.
So, ASML will be sitting on a nice backlog going into 2023. This looks likely considering that the demand for its machines should remain strong as foundries move toward manufacturing more advanced chips, which would only be possible with the help of ASML's extreme ultraviolet (EUV) lithography machines. Not surprisingly, analysts are projecting nearly 30% annual growth at ASML for the next five years, which is why buying the stock in a market crash could turn out to be a smart long-term move.
3. Synaptics
Synaptics is another fast-growing tech stock that's currently trading at 31 times earnings, but it is worth noting that it was trading at more than 91 times last year. A 48% slide in Synaptics' stock price has made the stock more affordable than before, and the forward earnings multiple of 10.5 indicates that its bottom line is on track to grow at an impressive pace.
Synaptics, whose chips power fast-growing applications such as the Internet of Things (IoT) and smartphones, is in fine form right now. It released fiscal 2022 third-quarter results (for the three months ended March 26) on May 5 and reported a 44% year-over-year increase in revenue to $470 million. Synaptics' adjusted gross margin shot up 6 percentage points over the prior year to 61.1% last quarter, while adjusted earnings were up 85% to $3.75 per share.
Analysts are looking at 15% annual growth from Synaptics for the next five years, but don't be surprised if the company clocks a faster pace of growth thanks to the markets it serves. In IoT, for instance, Synaptics says that it has scored multiple design wins -- which means that its offerings will be deployed in future products from customers -- and it is also witnessing the production ramp-up of earlier design wins.
More specifically, Synaptics Wi-Fi 6 and 6E connectivity chips are in healthy demand, and the company has also started sampling an integrated chip that supports Wi-Fi 6E, Zigbee, and Bluetooth. These growth hotspots have enabled Synaptics' IoT business to clock "high double-digit rates for seven straight quarters, outpacing almost all peers, making Synaptics one of the largest IoT-focused semiconductor players with approximately $1.2 billion in run-rate sales."
With the number of IoT devices expected to increase to 30.9 billion in 2025 as compared to 13.8 billion in 2021, according to a third-party estimate, Synaptics' IoT business should keep growing nicely for a long time. As IoT produced 64% of its total revenue last quarter, the bright prospects of this segment should rub off positively on Synaptics in the long run as its addressable opportunity expands.
As such, the sharp decline in the stock this year presents a great opportunity for investors to buy this high-growth company, though they may be able to buy it at a cheaper valuation in the event of a market sell-off.
